"On the day I made the final payment on the house, I sealed the envelope and put the stamp on it," said Karen Manzo, 58. "Then I got up and walked through the house as if I owned it."

"Because we did," said her husband, Joe, 56.

"That was a powerful moment for me," Karen said.

At a time when the average American family has credit-card debt estimated at $9,000, the Manzos walk a different path. Middle-class people who live completely without debt, they follow the frugal prescriptions of one of their favorite books, "The Millionaire Next Door," a 1996 bestseller written by two professors who studied the nation's affluent.

The way to become wealthy, the Manzos say, is to live as if they're not wealthy. Or, in the words of the book's authors Thomas Stanley and William Danko: "Being frugal is the cornerstone of wealth-building."

The Manzos have made investing mistakes and lost money during the stock market's downturn. But they expect their thrifty lifestyle to bring them to a prosperous retirement in 10 years.

"As a byproduct of just trying to be debt-free, we accumulate wealth," said Karen, a lab technician in New Jersey. They declined to reveal their incomes or assets. But their financial planner, Lauren Locker, said they have accumulated an impressive amount on moderate incomes: "We would all be lucky to be in their position," Locker said.

The Manzos' lifestyle would not work for everyone. Their wedding 30 years ago cost all of $700. They do without cable TV. Karen squeezes the toothpaste tube "till it screams" and buys her clothes at Burlington Coat Factory and Value City (her sister teasingly calls her Karen Kmart).

Their tidy house in Paterson, N.J., was paid off in 15 years. (Danko, a professor at the University at Albany, State University of New York, said millionaires typically own less expensive houses than they can afford.) Though the Manzos, who are childless, are comfortable there, many middle-income families with children would prefer to avoid Paterson's troubled schools.

The Manzos also track their spending meticulously in two spiral notebooks  one green, for money; the other black, because they're always in the black.

As a result, they are able to save all of Karen's paycheck  about 40 percent of their pretax income.

"I think some people feel, 'What's the good of having money if you don't spend it?"' said Joe Manzo, a quality manager at a factory. "But there's a price to be paid. Debt is a self-inflicted injury. It's the choices you make. I like SUVs, but I drive a '99 Ford Escort. Our identities aren't tied to possessions. You could lose your possessions. Who you are is not what you own."

His wife sums it up: "I want to be as common as an old shoe."

It's not that the Manzos never spend money. They go to Broadway shows, sponsor a scholarship at a Paterson Catholic school and have vacationed in Costa Rica, Panama and Europe. Being thrifty, Karen said, means "I can purchase anything I want because I have a financial nest egg."

Although the Manzos describe their income as average, "The Millionaire" book points out, "Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high."

The book gives the following yardstick for measuring assets: You should have an amount equal to your age times your annual income, divided by 10. So, for example, a 40-year-old couple with $100,000 income should have net worth of $400,000  not including home equity.

If you have double that, you're wealthy. The Manzos say their assets put them in the wealthy zone  before the stock-market bubble burst.

"We made  and lost  a fortune in the stock market," Karen said. She ignored her husband's advice to sell tech stocks before their value collapsed in 2000.

After that, they went to Locker, the financial planner, for help. Karen also joined an investment club affiliated with the National Association of Investors, which advocates long-term investments in companies selling at the right price.

Karen's frugality was born of an Indiana childhood watching her parents struggle to raise five children on her father's salary as a draftsman. Her mother didn't hold down a job or even know how to drive. Karen wanted wider horizons and financial security.

She took 10 years to work her way through college. The fact that her education was so hard-won makes her even more determined not to squander the money it has helped her earn.

Her husband had help from his parents to pay for college, but it came at a great sacrifice to his father, a welder.

Karen is such a believer in debt-free living that she keeps a copy of "The Millionaire Next Door" at work to show to co-workers and summer interns. She recently spoke about her strategies to about 15 of Locker's clients. "She doesn't have a nickel of debt  there's not another client I have like that," Locker said.

But several of them told her they could not imagine cutting their spending so radically. Even if they could, they said, their spouses would be unlikely to go along.

The Manzos know they couldn't have reached their financial goals without working together  a point also made by "The Millionaire Next Door."

"We don't agree on everything, but these are the core beliefs that have sustained us for the 30 years we've been together," said Joe.

"There is no arguing about money," Karen said. "That argument is never in our household. One of the byproducts of a debt-free lifestyle is that you eliminate the Number One cause of marital breakdown."

That may be one reason why, in the book's words, "financially independent people are happier than those who are not financially secure."

"Her husband had help from his parents to pay for college, but it came at a great sacrifice to his father, a welder."

I find phrases like this in just about every article about "self-made" wealth. More power to him for being frugal and I certainly wish them the best of luck. But how much did his father "greatly sacrifice"? Would it make any difference in their current lifestyle if he had to pay it himself?

This seems a bit strange. That must mean that their savings/401k's/IRA's etc have to be 400k more than their mortgages/credit card bills/liabilities. That seems pretty steep for a 40 year old making 100k per year. Am I missing something here/

10
posted on 01/04/2004 1:50:32 PM PST
by PISANO
(God Bless our Troops........They will not TIRE - They will not FALTER - They will not FAIL!!!!!)

"...walked through the house as if I owned it." "Because we did," said her husband, Joe, 56

Great story - good people - however I would say that no one ever owns property in the USA, even when there is no mortgage. Through never ending assessment of property taxes, and the burden of inheritance taxes, the state holds true ownership over the property now and forevermore.

The Manzos' lifestyle would not work for everyone. Their wedding 30 years ago cost all of $700.

Spendthrifts! When I get married, she'll wear her mother's wedding gown and I'll wear my blue business suit. For the reception, we'll have cake and soda in the general-purpose room at our church. She'll get a gold ring instead of a diamond ring because the mark-up isn't as high. Of course, I'll have to make it up to her by being affectionate and faithful, but hey, some women prefer that. Not most American women, obviously, but some women.

"The book gives the following yardstick for measuring assets: You should have an amount equal to your age times your annual income, divided by 10. So, for example, a 40-year-old couple with $100,000 income should have net worth of $400,000  not including home equity.

This is a good formula to use, and I have it in my net worth spread sheet. I am at two and a half times the resulting number.

I'm not cheap, and buy whatever I want. I think it is more important to have a high enough income to save substantial amounts while still living decently.

Look what is going on here. Dad paid for college. They have no kids. The wife isn't at home, but working, even though they don't need her to do so.

Yeah, we could live that way. But most of us don't. If you both work, live in a moderate home, have your parents pay off your student loans, you too can be like them.

There is a difference between living beyond your means, and living under your means. There is a balance there.

I wonder what exactly they are saving all this money for, if they have no kids, have no mortgage. They probably are so used to not spending money, that they will live the same way after they retire, end up dying with alot of money in the bank. I would rather die with "just $100,000" in the bank, and get nicer clothes, than die with $400,000 sitting in line at the K-mart waiting for the blue light special.

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